Supreme Court Says Cities Can Sue Banks Over Fair Housing Violations

The U.S. Supreme Court ruled this morning that cities are allowed to sue banks for alleged violations of the Fair Housing Act if the city is able to show that it was harmed by a bank’s discriminatory actions.

In 2013, the city of Miami filed lawsuits against both Bank of America and Wells Fargo, claiming that the banks broke the law by — among other claims — pushing minority home-buyers into more expensive adjustable-rate and subprime mortgages even when those borrowers could have qualified for more affordable loans.

As a result, argued the city, large numbers of homes in Miami went into foreclosure, decreasing property values in the area and putting a huge dent in the city’s tax revenue, and requiring the city to spend additional money to remedy the blight.

The Fair Housing Act allows for “aggrieved persons” to bring civil lawsuits for violations of the law, but does a city of 400,000 people count as a person?

The banks said no, arguing that the Fair Housing Act was not intended by Congress to protect the economic interests of a city, and that any injury Miami might have experienced as a result of any FHA violations is too far removed from the allegedly discriminatory practices.

A federal District Court judge agreed with the banks, finding that the city had failed to show a sufficient causal connection between the its and the allegedly discriminatory conduct.

However, in 2015 the Eleventh Circuit Court of Appeals reversed that decision [PDF], finding that the city’s claims were with the “zone of interests” covered by the FHA.

This morning, a divided Supreme Court largely upheld that decision, pointing out that there are multiple precedents allowing individuals and groups to sue for FHA violations even though they weren’t the direct target of discrimination. For example, the 1979 SCOTUS ruling in Gladstone, Realtors v. Village of Bellwood found that an Illinois village could sue over the real estate practice of steering minority home-buyers into certain already-integrated neighborhoods and away from predominantly white areas.

As Justice Stephen Breyer notes in the majority opinion [PDF], when Congress amended the FHA in 1988, it did nothing to adjust the “aggrieved person” language to make it more restrictive.

“Indeed, Congress was aware of our precedent and made a considered judgment to retain the relevant statutory text,” writes Breyer.

The banks argued that allowing the city to sue for alleged FHA violations would open the door to a flood of potential lawsuits from anyone who was indirectly affected by the rash of foreclosures. Plumbers, restaurants, utility companies — anyone who lost business as a result could bring a lawsuit.

The Supreme Court ruling mentions, but effectively disregards this line of thinking, saying it’s not relevant because the city’s claims of injury are within the scope of the law.

“The City’s complaints allege that the Banks intentionally targeted predatory practices at African- American and Latino neighborhoods and residents. That unlawful conduct led to a concentration of foreclosures and vacancies in those neighborhoods,” writes Breyer. “Those concentrated foreclosures and vacancies caused stagnation and decline in African-American and Latino neighborhoods. They hindered the City’s efforts to create integrated, stable neighborhoods. And, highly relevant here, they reduced property values, diminishing the City’s property-tax revenue and increasing demand for municipal services.”

The question is then whether or not the banks’ alleged actions were a direct cause of the city’s injuries. The Eleventh Circuit said “yes,” based primarily on its conclusion that these harms were foreseeable. SCOTUS disagrees slightly, saying that foreseeability is not sufficient on its own to bring an FHA claim, as the ups and downs of the housing market inevitably cause far-reaching economic ripples, but “Nothing in the statute suggests that Congress intended to provide a remedy wherever those ripples travel.”

Rather than define exactly where those ripples should be cut off, SCOTUS notes that Miami should be limited to bringing an FHA action for instances in which it can demonstrate a direct injury resulting from the alleged discrimination. That matter has been remanded back to the lower courts to hash out how to apply the question of directness to Miami’s claims for lost property-tax revenue and increased municipal expenses.